CALGARY, Alta. — Cervus Equipment Corporation (“Cervus” or the “Company”) (TSX: CERV) today announced its financial results for the quarter and year ended December 31, 2020 and an increase in the quarterly dividend to $0.11 per share. Cervus also announced, as part of its strategy to grow product support offerings, a new agriculture facility planned near Penhold, Alta. and the acquisition of Vapormatic distribution rights for the North Island of New Zealand.
"As I look back on the year that was 2020 and the challenges we faced, I am humbled by how successfully our teams tackled those challenges. Cervus' fourth quarter results finish off a year in which we achieved 8% growth in total revenue, 19% growth in gross profit and a 4% decrease in G&A expense," said Angela Lekatsas, President and CEO of Cervus. "I am very proud of the agility and resilience of our employees as they rallied together, to safely deliver the essential services that our valued customers depend on us to provide. The strategic initiatives commenced in 2020 aided in mitigating the impacts of the pandemic on Cervus, and combined with improving agriculture fundamentals, have Cervus well positioned for 2021."
- Cervus reported income of $25 million or $1.62 per basic share in 2020, compared to a loss of $9 million or ($0.56) per basic share in 2019.
- Adjusted income before tax increased $40 million, excluding the impact of wages subsidies, to $28 million, compared to an adjusted loss before tax of $13 million in 2019. Adjusted income per basic share was $1.30, compared to adjusted loss per basic share of ($0.65) in 2019.
- Total revenue increased 8% in the year, comprised of a 12% increase in Agriculture revenue, a 1% increase in Transportation revenue, partly offset by a 12% decrease in Industrial revenue.
- Agriculture used equipment inventory turnover for the trailing twelve-month period ended December 31, 2020, surpassed our long-term objective of 2.50 times, improving to 2.87 times compared to 1.78 times at December 31, 2019.
- Adjusted free cash flow from operations was $53 million for the year ended December 31, 2020, compared to $21 million in 2019, an increase of $32 million.1
- The Company repurchased and cancelled 0.3 million shares under its Normal Course Issuer Bid at a cost of $2.1 million for the year, and declared an increase in the dividend to $0.11 per share for the first quarter of 2021.
New Agriculture Facility Planned Near Penhold, Alta.
To better serve the Central Alberta region, our Red Deer and Olds John Deere dealership locations will be combining into a new facility near Penhold, Alberta, which is anticipated to be in service in early 2022. The new facility will offer increased parts availability and technician specialization, while utilizing technology to provide an enhanced customer experience. A training facility will also provide our customers and team with expanded learning and growth opportunities, while the new location will provide easier access for customers and their equipment.
Acquisition of Vapormatic Distribution Rights for the North Island of New Zealand
The Cervus New Zealand team is pleased to announce the acquisition of Vapormatic's exclusive distribution rights for the North Island, effective February 28, 2021. Vapormatic sells replacement parts for multiple brands of agriculture equipment, providing Cervus the opportunity to grow our product support offerings for this region.
2020 Annual Results
Our annual results demonstrate significant progress towards our strategic objectives, including a dramatic improvement in profitability, despite the challenges presented by the pandemic.
- In our Agriculture segment, accelerated marketing of new equipment, combined with positive growing conditions in our Canadian, Australian and New Zealand geographies, resulted in a 10% increase in new equipment revenue. Our sales team aligned re-conditioned used equipment with the needs of customers through the seeding and harvest windows, resulting in used equipment revenue increasing 15%. Product support revenue increased 12% in the year, as we executed on strategic parts initiatives, driving increases in over the counter, on-site, and online parts revenue, and the opening of our new dealership in Nipawin, Saskatchewan during the second quarter.
- Transportation new equipment revenue increased 7% for the year. A rebound in new equipment sales in the second half of the year, more than offset the decrease experienced in the second quarter, driven by the easing of pandemic related restrictions and the resulting improvement in customer demand. While showing some signs of recovery through the second half of the year, product support revenue declined 5% for the year, resulting from the broader economic impacts of the pandemic.
- Industrial total revenue decreased 12% for the year, resulting from ongoing oil and gas sector headwinds, compounded by the pandemic's impact on the general economy and the related restrictions, limiting our ability to perform preventative maintenance at customer's sites and in-person training.
- Gross profit increased 19% for the year, driven by the 8% increase in overall revenue, combined with the $20 million reduction in inventory impairments. Initiatives to improve Agriculture equipment sales and trade-in practices accelerated turnover of used equipment inventory, substantially reducing inventory impairments compared to the prior year.
- Growth in product support revenue contributed an additional $3.5 million or 3% increase to gross profit in the year compared to 2019, despite the significant impact of COVID-19 on industry activity in the Transportation and Industrial segments.
G&A Expenses and Net Finance Costs
- G&A expenses, which exclude equipment commissions, decreased 4% or $6 million in the year. Cost reductions were achieved despite recognizing performance incentives and a pandemic bonus to front-line workers in 2020, compared to 2019 when no performance incentives were earned. Excluding the current year increase in performance incentives, G&A expense decreased 9% or $13 million, resulting from restructuring initiatives, combined with variable expense management in response to the pandemic.
- Net finance costs decreased 17% or $2.2 million for the year, as we benefited from the reduction in inventory levels as well as lower interest rates.
- Income before tax increased $45 million in the year, including wage subsidies reported in other income of $7 million.
- The increased profitability for the year was the result of improvements across the business, specifically, growth in equipment and product support revenue, improved gross profit dollars and gross profit margin, combined with reductions in inventory impairments, G&A expenses and net finance costs, resulting in adjusted income before tax increasing $40 million for the year.
- Total inventory decreased $90 million from December 31, 2019, reflecting a $58 million decrease in the Agriculture segment and a $30 million decrease in the Transportation segment. This decrease in inventory, combined with strong used equipment sales in the year, resulted in Agriculture used equipment turnover for the trailing twelve-month period ended December 31, 2020, improving to 2.87 times from 1.78 times at December 31, 2019, surpassing our long-term used equipment inventory turnover objective of 2.50 times.
Fourth Quarter 2020 Results
- Overall revenue increased 6% in the quarter, driven by a 6% increase in equipment revenue and a 5% increase in product support revenue.
- The Agriculture increase in equipment sales of 3% was heavily weighted toward new equipment sales growth which increased 21% in the quarter, as above average crop quality and yield generated positive producer sentiment and demand. This was partly offset by a 15% decrease in used equipment revenue in the fourth quarter as harvest related activity shifted to the third quarter this year versus the prior year, when challenging conditions delayed harvest into the fourth quarter. Product support revenue increased 8% in the quarter, resulting from the same factors discussed in the annual results, combined with an increase in inspection activity due to the early harvest.
- Transportation equipment revenue increased 10% in the quarter, driven by an improvement in customer demand following the deferral of equipment purchases earlier in the year as an initial response to the pandemic. Industrial equipment revenue increased 42% in the quarter, primarily due to strong demand for used equipment retired from our rental fleet and an improvement in new equipment sales over a slow fourth quarter in 2019.
- The 6% increase in equipment revenue and 5% increase in product support revenue, combined with the $10 million reduction in inventory impairments, resulted in gross profit increasing 37% compared to the fourth quarter of 2019. As a percent of revenue, gross profit margin increased mainly due to the reduction in equipment inventory impairments.
- Growth in product support revenue contributed an additional $2.1 million or 7% increase to gross profit in the quarter compared to 2019.
G&A Expenses and Net Finance Costs
- G&A expenses, which exclude equipment commissions, decreased 1%, primarily due to continued cost saving initiatives in our Transportation and Industrial segments. Excluding the current quarter increase in performance incentives, compared to 2019 when performance incentives were not earned, G&A expenses decreased 10% or $3.9 million.
- The decrease in net finance costs of 39% was primarily due to the $90 million reduction in inventory levels, as well as lower interest rates quarter over quarter.
- Similar to our annual results, the improvement in fourth quarter profitability was driven across the business, including growth in equipment and product support revenue, improved gross profit dollars and gross profit margin, combined with reductions in inventory impairments, G&A expenses and net finance costs, resulting in income before tax increasing $17 million for the quarter. The increase in income before tax includes $1.0 million of wage subsidy reported in other income in the fourth quarter of 2020. Adjusted income before tax increased $16 million compared to the fourth quarter of 2019.
Cervus Equipment Announces New John Deere Dealership in Alberta — Cervus Equipment will be combining its Red Deer and Olds John Deere dealership locations into a new 44,000 square foot facility that will be built near Penhold, Alta. The new facility is anticipated to be in service in early 2022.
Cervus Equipment Posts 24% Decline in Full Year Ag Equipment Sales — Cervus Equipment, one of John Deere’s largest retailers of farm machinery in Canada, reported that 2019 revenue declined 16% for the full year, driven by a 22% decrease in equipment revenue, partly offset by a 6% increase in product support revenue.
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